Broadcom: What a Solid Quarter

Not all technology stocks are struggling. Broadcom’s (NASDAQ: AVGO) solid fourth-quarter beat affirms the upside potential. And while the headwinds in the stock market may prevent AVGO stock from rebounding back to old highs in the $250 - $275 range, the stock is worth watching.

Broadcom’s acquisition of the CA business is the only risk factor that may hold the stock price down. The CA unit may have goodwill and a revenue slowdown that will weigh on results. Still, management is bracing for a hardware sales slowdown beyond FY2019.

Management said CA will add meaningfully to profitability. 70% of CA’s revenue are from top 500 accounts who license CA mainframe products for over a decade. That consistent source of revenue justifies the debt it is taking on. Already at $2.5 billion a year in operating profitability from CA, management thinks revenue will stabilize at $3.5 billion a year and will grow from there.

At a P/E of 23 times and a forward P/E of 10.4 times, AVGO stock is worth a consideration at these levels.